Sep 24, 2008

Business - Bottom-line Idealism

Corporate social responsibility has attracted growing opprobrium over the past two decades because of the way corporations approach the issue. Most pay lip service to the concept of “doing good”; and those that do have robust CSR programmes expend so much energy on attracting publicity as to provoke public cynicism rather than approval. In that context, Indra Nooyi, PepsiCo’s CEO, has made a credible effort to bridge the gap between public cynicism and corporate integrity by strategically reorienting her company’s goals towards health, wellness and environmental friendliness. These objectives are not pretty, coloured boxes on a corporate PowerPoint presentation about the world’s largest beverages and second-largest snack-foods company. Nooyi has set her $39.47 billion conglomerate actionable targets. Thus, the share of health foods and nutritious products — what the company calls “Better for you” and “Good for You” products, such as Quaker Oats and fruit juices — is to rise from 30 per cent of revenues to 50 per cent. Meanwhile, by 2015, the company will cut water and electricity consumption per unit of consumption by 20 per cent each. Fuel consumption is to be cut by 25 per cent in the same time-frame. Nooyi also said the company aims to become a zero net user of water as early as next year.

To be sure, these targets are not driven by pure altruism. Nooyi is way too hard-headed for that, as is clear from the fact that colas and potato chips remain a significant part of PepsiCo’s portfolio but integrated under a tactfully-labelled “Fun For You” category. This shift in focus reflects a shrewd understanding of the imperatives for change and the need to integrate it with shareholder value. PepsiCo has been under siege on several fronts — indeed, Nooyi took charge in the thick of things. In India, one of its fastest-growing markets, the company has, together with its global rival Coca-Cola, been in the spotlight following research findings of high levels of pesticides in its beverages and packaged water. In the US, cola sales have been steadily falling and the snack foods business stagnating on the back of growing health consciousness. Worldwide, PepsiCo as an iconic global brand has inevitably been caught in the classic “Ugly Corporation” image, irresponsibly guzzling up scarce resources.With the new orientation, Nooyi has managed to address all three concerns and tied them to corporate performance. Or, as she told a business magazine last week, PepsiCo was doing “good in the commercial sense and also good in the moral sense”. Much of this didn’t really involve reading the corporate tea leaves. Focusing on fruit juices and health foods makes sense because data show that even as growth in cola sales is slowing, fruit juices and juice-based products are growing at 40 per cent. Also, the focus on health foods began before Nooyi took charge. The company sold Pizza Hut and KFC and acquired Tropicana, Gatorade and Quaker Oats when Nooyi oversaw strategy. As for savings on water, power and so on, cost-cutting remains a holy grail in every corporation worth its bottom-line, so what better way to package a financial imperative as a social responsibility (which it undoubtedly is)? What Nooyi has sensibly managed to do is provide a tangible strategic direction to inchoate good intentions and put PepsiCo’s money where the idealism is. In doing so, she is demonstrating to the world that corporate activity and social responsibility need not be conflicting aims.